Lec2 values and prices

Lec2 values and prices - Macroeconomic Policy Class Notes...

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Macroeconomic Policy Class Notes Macroeconomic Measurement 1: Values and Prices Revised: September 14, 2011 Latest version available at www.fperri.net/teaching/macropolicyf11.htm Our first lectures will be devoted to understanding and getting familiar with basic macroeconomic data. In economics, more than in other sciences, the gathering of data is linked with theory. NIPA (National Income and Product Accounting) provides a useful framework for organizing macroeconomic data. In this notes we will briefly describe the main ideas and concepts of NIPA . For US data, tables and methodol- ogy the best source is the Bureau of Economic Analysis (BEA) National Economic Accounts A model economy One important distinction we will make throughout the course is between domestic and national . Domestic pertains to someone or something that is located and operates in a given country. National pertains to something that belongs to that country but it is not necessarily located in the country. For example a Honda factory in Columbus Ohio is a US domestic firm but is a Japanese national firm. Figure 1 shows the 4 building blocks of the macroeconomy. 1. Households Households are the domestic private decision units. They buy goods and services from firms and from abroad, provide labor to domestic firms, exchange assets with foreigners, with domestic firms and with the government. 2. Firms Firms are the domestic private and public production units. They produce goods and services , employ capital and labor, purchase investment and inter- mediate goods from other firms and from abroad.
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Values and Prices 2 The flows of resources in a model economy Domestic firms (Production Units) Taxes Transfers Labor C d Exports C f G f Foreign Sector Domestic households (Decision Units) Int f Assets Assets I f Government Assets G d Intermediate Inputs I d Figure 1: The Building Blocks of the Macroeconomy
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Values and Prices 3 3. Foreign Sector The foreign sector is the collection of non-resident production and decision units. These units exchange goods and services with domestic firms, households and governments and they exchange assets with households and government. 4. Government The government is the collection of public decision units (the federal govern- ment, state and local governments, other government institutions). The gov- ernment buys goods and services from firms and from abroad, exchange assets, receives tax payments from households, makes transfer payments to them. Note that this distinction is purely conceptual: in some cases (self employed people, home owners) one person is at the same time household and firm since the person is both a consumer and a producer of goods or services, or an institution (for example a state school) is at the same time part of the government (because it is public) and part of the firms (because it produces a service).
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